Platek v. Town of Hamburg

• Decision Date: 19 February 2015
• Parties: Frederick J. PLATEK et al., Respondents, v. TOWN OF HAMBURG et al., Defendants, and Allstate Indemnity Company, Appellant.
• Court: New York Court of Appeals Court of Appeals

24 N.Y.3d 688

26 N.E.3d 1167

3 N.Y.S.3d 312

2015 N.Y. Slip Op. 01483

Frederick J. PLATEK et al., Respondents

v.TOWN OF HAMBURG et al., DefendantsandAllstate Indemnity Company, Appellant.

Court of Appeals of New York.

Feb. 19, 2015.

Dentons U.S. LLP (Robert H. King, Jr., of the Illinois bar, admitted pro hac vice, of counsel), and Kenney Shelton, Liptak Nowak LLP, Buffalo (Alan J. DePeters of counsel), for appellant.

Lipsitz Green, Scime Cambria LLP, Buffalo (Patrick J. Mackey and Joseph J. Manna of counsel), for respondents.

OPINION OF THE COURT

READ, J.

On September 7, 2010, a subsurface water main abutting the property of plaintiffs Frederick J. and Mary E. Platek ruptured, causing water to flood into and severely damage their home's finished basement. Plaintiffs immediately made a claim under their homeowners' insurance policy, which was issued by defendant Allstate Indemnity Company. The insuring agreement excludes property damage caused by water, with an exception for certain sudden and accidental direct physical losses; specifically, the section entitled “Losses We Do Not Cover Under Coverages A [Dwelling¹ Protection] and B [Other Structures Protection]” provides as follows:

“[Allstate does] not cover loss to the property ... consisting of or caused by:

“1. Flood ...

“2. Water ... that backs up through sewers or drains.

“3. Water ... that overflows from a sump pump, sump pump well or other system designed for the removal of subsurface water ...

“4. Water ... on or below the surface of the ground, regardless of its source [,] [including] water ... which exerts pressure on, or flows, seeps or leaks through any part of the residence premises.^{[ 2 ]}

“We do cover sudden and accidental direct physical loss caused by fire, explosion or theft resulting from items 1 through 4 listed above ” (emphases added).

On September 9, 2010, Allstate disclaimed coverage, based on item 4 of the policy's water loss exclusion. For the reasons that follow, we conclude that the policy's unambiguous language excludes the water damage to plaintiffs' home from coverage, and the exception does not nullify the water loss exclusion or render it ambiguous.

I.

Plaintiffs commenced this action by summons and complaint dated and filed on November 23, 2010. They alleged that Allstate had improperly disclaimed coverage, causing them to suffer damages in excess of $100,000.³ Then on March 11, 2011, plaintiffs moved for summary judgment on their breach of contract claim, asking Supreme Court to declare that the policy covered their loss and to direct Allstate to pay their claim. Plaintiffs asserted that because they had “sustained a water intrusion loss” caused by “an explosion of the ... water main,” their claim fell within the exception to the water loss exclusion.

In support of their motion, plaintiffs submitted the affidavit of an engineer, who stated that the water main “suddenly exploded from the internal water pressure being exerted on the pipe walls. Hence, the explosion resulted from internally pressurized water that was supposed to be contained in a buried underground pipe.” He opined that plaintiffs had therefore suffered “direct physical loss to their home and other property,” which was “caused by an explosion resulting from internally pressurized water suddenly and accidentally bursting from the underground pipe.”

By notice of motion dated April 7, 2011, Allstate opposed plaintiffs' motion and cross-moved for summary judgment to dismiss the complaint against it on the ground that the policy did not cover plaintiffs' claim, as a matter of law. Quoting the water loss exclusion, Allstate pointed out that the policy excludes property losses “consisting of or caused by ... 4. Water ... on or below the surface of the ground, regardless of its source[,] [including] water ... which exerts pressure on, or flows, seeps or leaks through any part of the residence premises.” Allstate added that the exception did not apply because, under that provision's wording, any “loss caused by ... explosion” must “result[ ] from” the explosion. Here, by contrast, any explosion “ occurred earlier, outside the residence premises, when the water main broke.”

By order granted May 6 and filed May 12, 2011, Supreme Court granted plaintiffs' motion and denied Allstate's cross motion, and declared that plaintiffs' loss was covered under the policy and Allstate was required to pay the claim. Allstate appealed, and on July 6, 2012, the Appellate Division, with two Justices dissenting in part, modified Supreme Court's order by vacating the declaration and otherwise affirmed (97 A.D.3d 1118, 948 N.Y.S.2d 797 [4th Dept.2012] ). All the Justices agreed that, since plaintiffs asserted a cause of action against Allstate for breach of contract, Supreme Court erred by “declaring” that plaintiffs' claimed loss was covered under the policy and directing payment. The Court split on the issue of whether the policy's sudden and accidental exception to the water loss exclusion applied.

With respect to the exception, the majority explained that

“Allstate characterizes [it] as an ‘ensuing loss' provision, and ... thus interprets [it] to provide that any initial loss to the insured's property caused by the conditions set forth in item 4, i.e., ‘[w]ater ... on or below the surface of the ground,’ is not covered under the policy but that, in the event that there is an ‘explosion ... resulting from’ that initial loss, any secondary or ensuing loss caused by the explosion is covered. Plaintiffs disagree that there must be a secondary or ensuing loss, and they assert that the exception applies because there was an ‘explosion [of the water main] resulting from’ the conditions set forth in item 4, i.e., ‘[w]ater ... below the surface of the ground,’ and causing ‘sudden and accidental direct physical loss' to their property” (id. at 1120, 948 N.Y.S.2d 797 ).

Concluding that both interpretations were reasonable, the majority held that the policy was therefore ambiguous and should be construed in favor of plaintiffs, the insureds.

The dissenting Justices observed that plaintiffs, not Allstate, bore the burden of demonstrating the applicability of the exception, and reasoned that, in any event, the policy's language was not ambiguous. In their view,

“interpreting the exception to cover a loss where an explosion is caused by water outside the residence ... contravenes the purpose of the water loss exclusion, which is to preclude coverage for losses caused by water entry into the residence. Rather, the language ‘resulting from’ is properly interpreted as referring to an ‘ensuing loss,’ i.e., a loss that follows or takes place after an excluded event. In other words, the exception refers to a separate occurrence—fire, explosion or theft—that results from the water damage to the residence, and does not refer to the water damage itself. For example, a fire or explosion triggered by water damage to a circuit breaker or appliance, or a theft that occurs in an empty house rendered uninhabitable by water damage would constitute an ensuing loss”(id. at 1123–1124, 948 N.Y.S.2d 797 [citations omitted] ).

Plaintiffs and Allstate subsequently entered into a stipulation whereby the parties agreed that plaintiffs' damages totaled $110,000. Allstate now appeals pursuant to CPLR 5601(d) from the resulting judgment granted on January 13 and entered on January 14, 2014.

II.

Three basic principles guide our analysis. First, “[i]n determining a dispute over insurance coverage, we first look to the language of the policy” (Consolidated Edison Co. of N.Y. v. Allstate Ins. Co., 98 N.Y.2d 208, 221, 746 N.Y.S.2d 622, 774 N.E.2d 687 [2002] ). Concomitantly, we “construe the policy in a way that affords a fair meaning to all of the language employed by the parties in the contract and leaves no provision without force and effect” (id. at 221–222, 746 N.Y.S.2d 622, 774 N.E.2d 687 [internal quotation marks omitted and emphasis added] ).

Second, although the insurer has the burden of proving the applicability of an exclusion (see Seaboard Sur. Co. v. Gillette Co., 64 N.Y.2d 304, 311, 486 N.Y.S.2d 873, 476 N.E.2d 272 [1984] ), it is the insured's burden to establish the existence of coverage (see Lavine v. Indemnity Ins. Co., 260 N.Y. 399, 410, 183 N.E. 897 [1933] ). Thus, “[where] the existence of coverage depends entirely on the applicability of [an] exception to the exclusion, the insured has the duty of demonstrating that it has been satisfied” (Borg–Warner Corp. v. Insurance Co. of N. Am.,

174 A.D.2d 24, 31, 577 N.Y.S.2d 953 [3d Dept.1992], lv. denied 80 N.Y.2d 753, 587 N.Y.S.2d 905, 600 N.E.2d 632 [1992] ; see also Northville Indus. Corp. v. National Union Fire Ins. Co. of Pittsburgh, Pa., 89 N.Y.2d 621, 634, 657 N.Y.S.2d 564, 679 N.E.2d 1044 [1997] ).

And finally, “[w]here a property insurance policy contains an exclusion with an exception for ensuing loss, courts have sought to assure that the exception does not supersede the exclusion by disallowing coverage for ensuing loss directly related to the original excluded risk” (Narob Dev. Corp. v. Insurance Co. of N. Am., 219 A.D.2d 454, 454, 631 N.Y.S.2d 155 [1st Dept.1995], lv. denied 87 N.Y.2d 804, 640 N.Y.S.2d 877, 663 N.E.2d 919 [1995] ; see also ITT Indus. v. Factory Mut. Ins. Co., 303 A.D.2d 177, 177, 756 N.Y.S.2d 188 [1st Dept.2003] [rejecting plaintiff's “untenable interpretation that the policy provided coverage for a resulting loss of an excluded risk”]; Montefiore Med. Ctr. v. American Protection Ins. Co., 226 F.Supp.2d 470, 479 [S.D.N.Y.2002] [where the policy excluded losses for faulty workmanship, the court rejected the insured's claim for the collapse of a defectively designed facade, explaining that “(a)n ensuing loss provision does not cover loss caused by the excluded peril, but rather covers loss caused to other property wholly separate from the defective property itself”] ).

In this case, plaintiffs' loss occurred when water from a burst water main flowed onto their...